24 May SUCCESS OR FAIL: THE GENIE’S LANTERN
Rock bank Split Enz rolled out the hit single “History Never Repeats” in 1981, well before the corporate disasters of Water Wheel, HIH, OneTel and more recently Dick Smith. We can forgive the band for their err in judgement as a statement depicting the corporate world given their slight distraction on extreme 80’s fashion and synthesized music.
Fast forward to 2018 and front-page articles reveal Australia’s banks ‘breaking bad’ with their bedside manners when dealing with their clients and AMP’s total brain snap with ASIC.
So, did Split Enz get it so wrong and is history still repeating itself? What is happening within Australia’s corporate governance that seems to willingly seek to destroy big balance sheets when there is so much history to lean on? Do Australians have an incapacitating culture that dissolves good decision making all the way down through to small enterprise?
More importantly, what is corporate governance all about in context as a mechanism to ensure survivability of Australian business?
The Meaning of Corporate Governance
All businesses, no matter what size or enterprise, operate within an environment from which the business needs to function. The business operating environment captures company and statute law, regulatory bodies, shareholders (or beneficiaries), society’s expectations, self-regulatory codes and key stakeholders. All of which needs to be managed from a risk perspective and strategically.
Corporate Governance extends well beyond business strategy and compliance. It is about the construction of a framework within the business to ensure it operates under a system and code (of ethics) that adheres to all the elements within the environment.
The banks may not have done anything illegal (albeit the jury is still out) and generating maximum profits from the market may seem legitimate from a financial standpoint. What the banks have lost sight of is their position to conduct themselves in a manner that is expected from them in society. They have breached their social contract, and with that their trust has been lost. Without trust, running a financial services business (ie managing mum and dad’s money) is a fundamentally flawed business model.
So corporate governance revolves around the decision makers knowing exactly what the corporate strategy is (with regards to their operating environment) and knowing where the risk appetite sits for that business. The business owners or board needs to create a robust framework around their strategic execution, decision making, reporting, compliance, risk management and crisis management to be successful. Rigour in execution, ambient in culture and effectiveness in decision making are all key attributes.
The Genie’s Lantern
Just because you have a board does not mean there is effective governance in place. Just because you are a small business does not exempt you from governance. There is no genie’s lantern that can make poor decisions go away. You can’t wish for improved trading conditions, you can’t wish for your competitors to go home, you can’t wish for disruption to slow down. With a structured framework, an engaged and diverse management team and a defined strategy and risk policy, your business can be guided through all the challenges and seek acclaimed rewards.
In conclusion, the values and characteristics that are inherent within a solid corporate governance framework, are the same that create bankability. As a member of the Australian Institute of Company Directors, it is inspiring to see many business owners seeking continual self-improvement by a deeper learning of what true Corporate Governance means and the importance of it to create a sustainable value in your business.
This is a deep topic but please call us anytime to layer more detail to this discussion point.